The Voice® Newsletter

September 2011 - Vol. 5, Issue 16

The Voice is the e-mail newsletter of The Special Needs Alliance. This installment’s author is Edward V. Wilcenski, Esq., a founding partner of the law firm of Wilcenski & Pleat PLLC in Clifton Park, New York. He practices in the areas of special needs planning, elder law and trust and estate planning and administration. A member and past president of the Special Needs Alliance, Ed writes and lectures frequently on issues affecting individuals with disabilities and their families.

Special Needs Information on the Internet: Proceed with Caution

The Good News About the Internet

Like almost everyone else nowadays, lawyers who practice in the area of special needs often turn first to the Internet with their questions. When they learn of an unfamiliar disability or diagnosis, off to the Internet they go. They look for explanations of the disability, how it might impact a client’s life, and what programs and services are available to help support the individual. The result is often both better legal advice and better planning documents.

Similarly, new clients often arrive at a special needs planning lawyer’s office with a basic understanding of special needs trusts, guardianships, and government benefits, most of it also garnered from the Internet. With both client and counsel having done their preliminary research on the Internet, they can get right to a discussion of the client’s needs and goals. As one commercial says, “An educated consumer is the best customer.” The same concept applies to special needs planning.

There’s another major use of the Internet for special needs planning lawyers. They use the Internet for legal research, to remain abreast of changes in the law, and to share questions and planning approaches with colleagues who practice in the same area.

Finally, clients who are parents of children with special needs use the Internet to meet and get support from other parents, to find programs and services in their communities, and to follow developments in medication, treatment, and therapies. All in all, the Internet is a great resource for client and counsel alike.

That is the good news. However, there is a down side as well. Much Internet information is superficial, biased, or only a part of the whole story. It can even be flat-out wrong. Without context and perspective, it can be difficult to determine the reliable from the unreliable, the useful from the useless. This article highlights a few ways that Internet information can become a hindrance rather than a help.

Not All Special Needs Trusts Are Created Equal

Readers of The Voice may be familiar with the concept of a “special needs trust.” To briefly review, this is a type of trust specifically designed to hold money or other assets for individuals with disabilities who receive government benefits when eligibility for those benefits depends on the individual having few assets and/or low income. Special needs trusts (SNTs) are then used to provide goods and services that supplement what is available through those programs without damaging the recipient’s eligibility for benefits. Clients who want more information about SNTs are likely to turn first to the Internet – but should exercise caution as they review material there.

One of the most common points of confusion for clients (and even many professionals) is the distinction between a “first party” SNT and a “third party” SNT. A first party SNT is funded with assets belonging to the person with the disability, while a third party SNT is funded with assets that belonged to someone else. If a visitor to an Internet website discussing special needs trusts does not know the difference between the two (or if the website does not draw a sufficient distinction in its explanation), the visitor is likely to draw conclusions that are not relevant to his or her situation.

For example, a first party SNT must include a “payback” provision effective upon the death of the beneficiary that requires the SNT to pay back the state for all Medicaid benefits this beneficiary ever received. Third party SNTs do not need to include such a payback provision, and indeed should not have one. The funds remaining in a third party SNT can go wherever the creator of the trust chooses after the death of the beneficiary with a disability. Nevertheless, clients and professionals alike can often be heard to say that SNTs generally require a Medicaid payback at the end of a beneficiary’s life, without distinguishing between the two types of SNTs.

This error can have disastrous consequences. For example, if a mother wants to update her estate plan and incorrectly believes that any money she leaves for her child with a disability will be subject to Medicaid repayment after the child’s death, she may choose to leave that child out of her estate plan altogether. Even worse, special needs planning attorneys sometimes see a payback provision in an otherwise well-drafted third party SNT. After the death of the “settlor” or creator of the SNT, it is usually too late to do anything about it. The SNT will end up making a big and unnecessary gift to the state after the death of the beneficiary with a disability solely because the trust included the inappropriate payback provision.

Tip O’Neill Would Certainly Agree

The second problem with Internet information is that it is often either national in scope, or specific to some other state. This can be very misleading because the rules governing special needs planning in general, and SNTs in particular, vary greatly from state to state, and in some cases even from region to region within an individual state. Former Speaker of the House of Representatives Tip O’Neill famously said, “All politics is local.” The same is true of special needs law and planning.

Relying solely on general national rules can lead to major planning errors and missed opportunities. Consider an adult with mental illness who resides independently and receives services through a community-based, Medicaid-funded program. Assume that his only source of income is Social Security Disability Insurance (SSDI), and that he does not receive any Supplemental Security Income (SSI). Assume further that his brother is trustee of a discretionary SNT established by his parents before they died some years ago. Can the trustee use money from the SNT to make rent payments so his brother can move into a nicer apartment without disqualifying him from his Medicaid benefits?

In New York, the answer is yes, because the New York Medicaid program does not (with a few limited exceptions) count payments to landlords as income for Medicaid eligibility purposes. The answer would be quite different in other states where the Medicaid program rules treat payments for housing as income that reduces benefits, and where SNTs are therefore drafted to discourage the trustee from making distributions for such purposes. So the answer to the trustee’s question will depend not only on the types of benefits the beneficiary receives (e.g., Medicaid, SSI, or Section 8), but also on the state where the SNT beneficiary lives (and sometimes where he or she lives in that state).

Here’s another issue that Internet websites often gloss over. How much money can the beneficiary of an SNT have in his name without prejudicing his or her benefits? Many websites use $2,000 as the resource limit for SNT beneficiaries. In many cases, such as when the beneficiary is a recipient of SSI, this figure is correct. In others, as in the case of the New York beneficiary with mental illness described above, the Medicaid program’s resource limit will control instead of the $2,000 SSI limit. In New York in 2011, that limit is $13,800. In other states, the figure is different.

Other deviations from the general rules typically found on the Internet abound. For example if an individual is married and receiving services through a community-based, Medicaid-funded program, can the nondisabled spouse work without prejudicing the benefits of the spouse with a disability? That additional household income would help take some of the pressure off the SNT being held for the disabled spouse. The answer depends on the particular type of Medicaid-funded program. Some programs count the income of the nondisabled spouse in determining Medicaid eligibility for the disabled spouse, and some don’t.

It should be clear from these examples that no website can provide detailed and current information to cover every possible situation. Instead, it is important for website readers to understand that the information on the Internet is just the beginning of a search for the right answers. The right answers will come only with a subsequent close analysis of the individual’s circumstances: his or her existing and potential benefits, needs, desires, and residence.

You Can’t Judge a Book . . .

Finally, there is the issue of website advertising. As most readers know, attorneys, financial planners, accountants, private care managers and others announce relevant experience and competence in this area. Everyone knows that he or she shouldn’t draw conclusions – positive or negative – about a professional based solely on a website or yellow page advertisement. Most also know that no one monitors what a professional says on a website about her experience in a particular practice area or discipline. Nevertheless, most people do rely on these sources to help them filter out the seemingly endless number of options for professional services. In addition, it’s hard not to be persuaded by a good presentation.

Over the years, increased attention has been given to special needs planning and related disability issues. For example, many financial institutions are expanding their trust and other financial management services to meet the needs of a growing number of families having to deal with disability issues. Lawyers and accountants are dedicating time and resources to learning more about this area of practice. Case managers and other service providers who had previously concentrated solely on the elderly population are expanding their reach and offering privately paid advocacy and services to younger individuals with disabilities. In general, these are good developments because they increase the number of options available to consumers of these services. The Internet is a great way to locate such professionals in our communities.

That said, anyone can claim to be an “expert” on the Internet. A general estate planning lawyer can magically become a “special needs planning expert” just by naming himself as one on his website. A financial planner who has always focused on tax planning can become “an experienced special needs estate planning professional” just by saying so on her website. There is little to limit such grandiose self-descriptions on the Internet.

Obviously readers of websites need to go past the self-serving declarations of professionals seeking work. Readers should be particularly suspicious of professionals who claim a broad area of competence or offer charges that seem too good to be true. A lawyer who says he does everything probably does not have much experience in anything particular.

In addition, careful consumers of legal services should look for biographies and publications to show that a lawyer has experience and training in special needs issues. Is the professional actively involved with the disability community, or does he or she have a family member with a disability? How long has he or she focused on this area of law? Are there any published articles that are available for review? Is the lawyer a member of, or have a position of responsibility with, relevant professional organizations and nonprofit advocacy groups?

Finally, careful consumers should look for reliable references. They can talk to other, similarly situated families, check with service coordinators and staff from local disability organizations, and ask for help from other professionals who serve the disability community, such as doctors and other health care professionals.

All this is clearly more work than simply accepting the promises of the flashiest website, but it will undoubtedly be worth the effort.

About this Newsletter: We hope you find this newsletter useful and informative, but it is not the same as legal counsel. A free newsletter is ultimately worth everything it costs you; you rely on it at your own risk. Good legal advice includes a review of all of the facts of your situation, including many that may at first blush seem to you not to matter. The plan it generates is sensitive to your goals and wishes while taking into account a whole panoply of laws, rules and practices, many not published. That is what The Special Needs Alliance is all about. Contact information for a member in your state may be obtained by calling toll-free (877) 572-8472, or by visiting the Special Needs Alliance online.

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